Budget 2026 : What it means for you
FISCAL OUTLOOK
Return to Surplus – With an Important Caveat
The fiscal outlook has improved, but the headline surplus number requires careful reading. Under Finance Minister Willis’ preferred measure – OBEGALx (the operating balance before gains and losses, excluding ACC) – Treasury forecasts a surplus of $2.6 billion in 2028/29, a significant improvement on the $900 million deficit forecast in December’s Half Year Update, and what Willis described as the first surplus in a decade.
However, under the traditional OBEGAL measure – which includes ACC and remains the benchmark most economists use – surplus is not reached until 2029/30. Notably, December’s forecasts showed no surplus at all within the four-year forecast period on either measure, so there is genuine improvement on both counts.
Separately, net core Crown debt is expected to begin falling as a percentage of GDP in 2028/29 – a turning point arriving a year earlier than previously forecast, peaking at around 46% of GDP in 2027/28. The Government reduced its operational allowance from $2.4 billion to $2.1 billion, while lifting capital spending to $5.7 billion.
Bentleys’ perspective: The improved fiscal trajectory is welcome, but the surplus story depends on which measure you use. The switch to OBEGALx – introduced by the Government in late 2024 – means the headline 2028/29 surplus figure is not directly comparable to targets set under the traditional OBEGAL measure. Clients should also note that Treasury’s forecasts assume the Middle East fuel crisis is temporary; risks to the downside remain material. We recommend businesses continue to plan conservatively.
SPENDING PRIORITIES
Where the Money is Going
New spending is tightly focused on core public services, consistent with the Government’s stated priorities. Key areas of increased investment include:
HEALTH
A “major lift” in health funding was confirmed, including $35 million for road ambulance services and new hubs in Auckland, with emergency demand projected to grow by 95,000 incidents over four years.
DEFENCE
$158 million for military drones, ship maintenance and navy fleet renewal, plus $70 million for new unmanned underwater vehicles to combat maritime smuggling.
INFRASTRUCTURE
The bulk of the $5.7 billion capital programme targets transport and infrastructure upgrades, with housing incentive funding flowing to councils that accommodate new growth.
ENERGY SECURITY
$150 million to increase fuel storage reserves alongside temporary increases to the In-Work Tax Credit and mileage rates for care and support workers, in response to Middle East supply pressures.
The Fees Free scheme for final-year university students will be scrapped, and public sector headcount reductions remain a feature of the savings programme.
TAX MEASURES
Key Tax Changes Announced
NEW LEVY
Prudential Regulation & Supervision Levy
Banks, non-bank deposit takers, insurers and other financial market participants regulated by the Reserve Bank will be subject to a new levy, designed to recover the costs of their regulation – mirroring arrangements already in place for the FMA and Commerce Commission. The levy is estimated to raise around $209 million over four years, representing less than 1% of the major banks’ total profits. This aligns New Zealand with international practice in Australia, Canada and the UK.
NEW TAX
Loans to Shareholders on Company Removal
Companies that have loaned money to their shareholders and are subsequently removed from the companies register without those loans being repaid will now face a tax liability on any amount remaining outstanding six months after removal. The Government expects to collect $160 million over four years from this measure, which closes a gap where shareholder loans have been used to extract value from companies ahead of liquidation.
FBT
Fringe Benefit Tax – Private Vehicle Use Simplified
The rules for calculating FBT on private use of motor vehicles are being simplified, reducing compliance costs for employers. This is part of a broader package of FBT technical improvements aimed at making the regime easier to administer, particularly for businesses managing fleet vehicles or global insurance arrangements.
FIF
Foreign Investment Fund – Threshold Doubled
The threshold below which New Zealand investors are exempt from the FIF regime will be lifted from $50,000 to $100,000 – a threshold that had remained unchanged for over 25 years. A new calculation method for tax on unlisted offshore shares is also being introduced. Together these changes are expected to benefit investors by $73 million over four years and will be welcomed by New Zealanders with modest offshore share portfolios who have been caught by the regime despite its original intent.
R&D
Research & Development Tax Incentive – Early Access
Businesses will be able to access R&D tax credits earlier than the current end-of-year claim process allows. This is a useful cash flow improvement for innovative businesses investing in research and development, and reflects the Government’s interest in supporting productive investment without increasing headline spending.
CHARITIES
Charity & Not-for-Profit Tax Rules Overhauled
After years of uncertainty, the Government has drawn a line under charity tax reform. The tax-free income threshold for not-for-profits increases from $1,000 to $10,000. Donations eligible for the donation tax credit will be capped at $100,000 per donor per year to protect the scheme’s financial sustainability and limit related-party tax planning. Additional changes allow donation tax credit refunds to flow throughout the year rather than only at year-end, and donors will be able to direct their refunds as a gift to their chosen charity.
NRCT
Non-Resident Contractors Tax – Technical Amendments
Changes are being made to improve the workability of the Non-Resident Contractors Tax rules, which have been a compliance burden for businesses engaging overseas contractors. While detailed legislation is yet to be released, the changes form part of the broader compliance simplification theme running through Budget 2026’s tax package.
